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CA Intermediate · Cost and Management Accounting · Activity Based Costing

Kaveri Industries uses ABC. Its monthly quality inspection cost pool is Rs 2,40,000 and the cost driver is the number of inspections. Product P required 150 inspections and product Q required 250 inspections in the month, out of a total of 600 inspections (the remainder was for other products). Product P output was 3,000 units. What is the inspection cost per unit of P?

The inspection cost per unit of P is Rs 20. The rate is Rs 2,40,000 divided by 600 inspections, which is Rs 400 per inspection. P used 150 inspections, so Rs 60,000 is charged, and dividing by 3,000 units gives Rs 20.

  1. ARs 20Correct
  2. BRs 12
  3. CRs 8
  4. DRs 40

Explanation

Rate per inspection = 2,40,000 / 600 = Rs 400. Cost charged to P = 150 x 400 = Rs 60,000. Per unit = 60,000 / 3,000 = Rs 20. Using Q's 250 inspections instead gives a wrong base, and dividing the pool by P's units alone gives Rs 80.

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